Supplement No. 3 Rule 424(b)
EA INDUSTRIES, INC.
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SUPPLEMENT NO. 3 TO PROSPECTUS, DATED NOVEMBER 26, 1996
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On September 25, 1996, EA Industries, Inc., a New Jersey corporation
formerly known as Electronic Associates, Inc. (the "Company"), filed a
registration statement (Registration Statement No. 333-12691) (the "Registration
Statement") with the Securities and Exchange Commission relating to the offer
and sale of 3,527,742 shares of Common Stock (the "Shares") of the Company from
time to time by a certain stockholder, a warrant holder and certain convertible
subordinated debenture holders and convertible note holders of the Company
(collectively referred to as the "Selling Securityholders"), together with the
3,527,742 Preferred Stock Purchase Rights ("Rights") associated with the Shares.
The Registration Statement, as amended, was declared effective on November 26,
1996.
On December 16, 1996, the Board of Directors of the Company approved and
declared a one-for-four reverse Stock Split of the shares of Common Stock of the
Company to be effective as of the close of business on December 27, 1996 (the
"Record Date"), such that each holder of record on the Record Date was entitled
to receive, as soon as practicable thereafter, one (1) share of no par value
Common Stock of the Company for every four (4) shares of no par value Common
Stock held by such person on the Record Date (the "Reverse Stock Split").
Following the Record Date, the number of Shares of Common Stock, and associated
Rights, which continued to be offered by the Selling Securityholders pursuant to
the Registration Statement and Prospectus dated November 26, 1996 included in
the Registration Statement (the "Prospectus"), as reflected under the heading
"Plan of Distribution and Selling Securityholders," were reduced on a
one-for-four basis in accordance with the Reverse Stock Split, except to the
extent that the Shares issuable upon conversion of the Convertible Debentures in
accordance with the conversion price thereof are tied to the market price of the
Company's Common Stock.
Included in the Shares currently covered by the Registration Statement are
(i) 775,280 Shares (193,820 Shares post-Reverse Stock Split) into which certain
Convertible Notes due December 29, 1997 in the aggregate principal amount of
$2,070,000 (the "Convertible Notes"), originally held by the Chairman of the
Company and certain trusts for his children's benefit are convertible, and (ii)
2,025,000 Shares (506,250 Shares post-Reverse Stock Split) into which certain 9%
Convertible Subordinated Debentures due May 3, 1998 in the aggregate principal
amount of $8,100,000 (the "Convertible Debentures"), are convertible, provided,
however, that with respect to the Convertible Debentures, the actual number of
shares issuable upon the conversion of the Convertible Debentures which are
included in such Registration Statement is equal to the principal amount of the
Amended Convertible Debentures converted divided by a conversion price per share
equal to the lesser of (i) eighty percent (80%) of the average of the closing
price of the Company's Common Stock as traded on the NYSE for the five days
immediately preceding the date of notice of conversion to the Company, or (ii)
$4.00 ($16.00 post-Reverse Stock Split) (the "Original Conversion Formula").
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The Prospectus, as supplemented by Supplements No. 1 and 2, dated
December 4, 1996 and December 18, 1996, respectively, is hereby further
supplemented as follows:
The section titled "The Company - Recent Developments" is supplemented by
adding the following paragraphs.
Amendment to Convertible Notes. As of the date hereof, none of the
Convertible Notes have been converted into Shares of Common Stock of the
Company. On February 6, 1997, in return for the Convertible Note holders
foregoing interest and making available certain other loans to the Company, the
Company amended the Convertible Notes (the "Amended Convertible Notes") by
(i) increasing the aggregate principal amount of such notes to $2,725,000 and
(ii) reducing the fixed conversion price from $2.67 per share (pre-Reverse Stock
Split price) ("Original Conversion Price") to $1.50 per share (post-Reverse
Stock Split price) (the "Amended Conversion Price"). Of the aggregate amount of
shares into which the Amended Convertible Notes may be converted as a result of
such amendment, the Prospectus relates to the 193,820 Shares (post-Reverse Stock
Split) issuable upon conversion in accordance with the Original Conversion
Price, and associated Rights, which are covered by the Registration Statement.
The Company has agreed to register all additional Shares which may be acquired
upon conversion of such Amended Convertible Notes. On February 6, 1997, certain
trusts for the Chairman's children's benefit which hold a portion of the Amended
Convertible Notes, assigned an aggregate principal amount of $600,000 of such
Amended Convertible Notes to Chanie Lerner in consideration for $600,000 in a
private transaction. Accordingly, as discussed below, Chanie Lerner is being
named in the Prospectus as a Selling Securityholder for a portion of the
underlying shares of Common Stock into which such assigned Amended Convertible
Notes are convertible and which are covered by the Registration Statement.
Amendment to Convertible Debentures. As of the date hereof,
$3,786,000 principal amount of Convertible Debentures have been converted into
2,314,640 Shares of Common Stock (post-Reverse Stock Split Shares) of the
Company. The ceiling conversion price of the remaining $4,314,000 principal
amount of Convertible Debentures (the "Amended Convertible Debentures") has been
reduced from $4.00 per share (pre-Reverse split stock price) to $1.50 per share
(post-Reverse Split Stock price) as a result of the holders having refrained
from certain sales and conversions from January through April 1997. The actual
number of shares of Common Stock to be issued upon the conversion of the Amended
Convertible Debentures will be equal to the principal amount of the Amended
Convertible Debentures converted divided by a conversion price per share equal
to the lesser of (i) eighty percent (80%) of the average of the closing price of
the Company's Common Stock as traded on the NYSE for the five days immediately
preceding the date of notice of conversion to the Company, or (ii) $1.50
(post-Reverse Stock Split price) (the "Amended Conversion Formula"). Of the
aggregate amount of shares into which the Amended Convertible Debentures may be
converted as a result of such amendment, the Prospectus relates to the Shares
issuable upon conversion in accordance with the Original Conversion Formula and
associated Rights, which are covered by the Registration Statement. The Company
has agreed to register all additional shares which may be acquired upon
conversion of such Amended Convertible Notes in accordance with the Amended
Conversion Formula.
Possible or actual sales made under Rule 144, or pursuant to
exemptions under the Securities Act, or pursuant to registration rights, of the
Shares issuable upon conversion of the Amended Convertible Notes and Amended
Convertible Debentures may have a material adverse effect upon the market price
of the Company's Common Stock. Further, the Amended Convertible Notes and
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Amended Convertible Debentures are convertible into shares of Common Stock at a
conversion price which is significantly less that the current market price of
the Company's Common Stock, which may also have a material adverse effect on the
market price of the Company's Common Stock prior to conversion.
In addition to the assignment of a portion of the Amended Convertible
Notes to Chanie Lerner discussed above, a number of holders of the Amended
Convertible Debentures named in the Prospectus have made private transfers of
all or a portion of their Amended Convertible Debentures to other third parties.
Accordingly, the section titled "Plan of Distribution and Selling
Securityholders" in the Prospectus is hereby amended and restated to reflect the
current holders of all of the Amended Convertible Debentures and Amended
Convertible Notes as Selling Securityholders as a result of such private
transfers in place of those persons named as the holders of the Convertible
Debentures and Convertible Notes in the Prospectus and to reflect those shares
underlying the Amended Convertible Debentures and Amended Convertible Notes
which are included in the Registration Statement, as follows:
PLAN OF DISTRIBUTION AND
SELLING SECURITYHOLDERS
The Shares will be offered by the Selling Securityholders or
their donees, pledgees, transferees or other successors in interest for resale
by this Prospectus from time to time after the date hereof in one or more
transactions on the NYSE, in negotiated transactions, or private transactions,
or otherwise, or a combination of such methods of sale, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. The Selling Securityholders may effect such
transactions by selling the Shares to or through broker-dealers, and such
broker-dealers may receive compensation in the form of underwriting discounts,
concessions or commissions (which compensation may be in excess of customary
commissions). The following table sets forth as of May 6, 1997 (a) the name of
each Selling Securityholder, (b) the nature of any position, office or other
material relationship which the Selling Securityholder has had within the past
three years with the Company, (c) the number of Shares owned prior to the
offering, (d) the number of Shares to be offered for the Selling
Securityholder's account, (e) the number of Shares to be owned by the Selling
Securityholder after completion of the offering, and (f) the percentage of
Common Stock to be owned by the Selling Securityholder after completion of the
offering.
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<TABLE>
<CAPTION>
Number of Percentage of
Number of Shares Common
Relation- Shares Owned Number of Owned Stock Owned
Name of Selling ship to Prior to Shares After After
Securityholder Company(1) Offering Offered Offering Offering(2)
- ---------------- ---------- ------------ -------- --------- -----------
<S> <C> <C> <C> <C> <C>
Laura Huberfeld 326,473(7) 37,500(3) 388,973 5.12%
and Naomi Bodner 100,000(9)
Partnership
Robert Cohen 100,000(9) 37,500(3) 62,500 (12)
Lenore Katz 16,667(9) 6,250(3) 10,417 (12)
Kids Associates 26,667(9) 10,000(3) 16,667 (12)
Chanie Lerner 67,667(9) 25,000(3) 399,991 5.26%
400,000(10) 42,676(4)
Millenco L.P. 1,333,333(9) 500,000(3) 883,333 11.62%
50,000
CMR Associates, LLC 140,000(9) 52,500(3) 87,500 1.15%
Arrasy Corp. 483,333(9) 181,250(3) 302,083 3.97%
Fargher Trading, Ltd. 483,333(9) 181,250(3) 302,083 3.97%
Kinley Consultants 126,000(9) 47,250(3) 78,750 1.04%
Limited
Elizabeth Gross 643,333(10) 67,570(4) 575,763 7.58%(4)
Trust A U/T/A of
Irwin Gross Trust
dated 3/20/90
Gabrielle Gross 643,333(10) 67,570(4) 575,763 7.58%(4)
Trust B U/T/A of
Irwin Gross Trust
dated 3/20/90
Irwin L. Gross Chairman 342,000(5) 16,004(4) 475,996 6.26%(4)
150,000(10)
Broad Capital 326,473(7) 89,286(6) 337,187 4.44%
Associates, Inc. 100,000(11)
Aryeh Trading, Inc. 125,000(8) 125,000 -0- -0-
</TABLE>
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(1) Except as expressly set forth in the table, none of the Selling
Securityholders has had any relation to the Company within the past three years.
(2) Assumes that all Shares which are registered are sold in the
Offering. Also, calculation is based on approximately 7.6 million shares of EAI
Common Stock outstanding at May 6, 1997.
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(3) Represents shares of the Company's Common Stock into which certain 9%
Convertible Subordinated Debentures due May 3, 1998 in the original
aggregate principal amount $8,100,000, issued by the Company in May and June
1996 to the Selling Securityholders listed above, were convertible prior to the
amendment thereof in accordance with the Original Conversion Formula. For
purposes of determining the number of shares of the Company's Common Stock to
include in this registration statement, the Company assumed a conversion price
of $4.00 per share. The actual number of shares of Common Stock issuable upon
the conversion of the Convertible Debentures in accordance with the Original
Conversion Formula included in the Registration Statement was equal to: the
principal amount of the Convertible Debentures converted divided by a conversion
price per share equal to the lesser of (i) eighty percent (80%) of the average
of the closing price of the Company's Common Stock as traded on the NYSE for the
five days immediately preceding the date of notice of conversion to the Company,
or (ii) $4.00 ($16.00 post-Reverse Stock Split price). In accordance with Rule
416 under the Securities Act, this registration statement also covers such
indeterminate number of additional shares of Common Stock as may become issuable
upon the conversion of the notes to prevent dilution resulting from stock
splits, stock dividends or similar transactions or by reason of changes in the
conversion price as aforesaid. See footnote (9) below.
(4) Represents shares of the Company's Common Stock into which certain 7%
Convertible Subordinated Notes due December 29, 1997 in the original aggregate
principal amount of $2,070,000, reissued by the Company to the Selling
Securityholders listed above, were convertible prior to the amendment thereof,
in accordance with the Original Conversion Price post-Reverse Stock split. The
Convertible Notes represent the outstanding balance of the 7% convertible
subordinated note issued by the Company to GFL Advantage Fund in December 1995.
The Selling Securityholders listed above acquired such convertible subordinated
note from GFL Advantage Fund on August 19, 1996, and as a result, the Company
reissued the Convertible Notes to such Selling Securityholders upon cancellation
of the note assigned by GFL Advantage Fund. See footnote (10) below.
(5) Includes warrants to purchase an aggregate of 65,500 shares of Common
Stock issued by the Company to Mr. Gross, in connection with his retention as a
consultant to the Company in March 1994. Also includes options to purchase
166,667 shares of Common Stock granted under the Company's Equity Incentive Plan
but does not include options to purchase shares also granted at the same time
pursuant to the Company's Equity Incentive Plan which are not currently
exercisable. Includes options to purchase 83,333 shares granted by the Company \
to Mr. Gross pursuant to the Company's Equity Incentive Plan but does not
include options to purchase 166,667 which are not currently exercisable. Does
not include 20,000 shares of Common Stock held of record by irrevocable trusts
for the benefit of the children of Mr. Gross with respect to which an
independent trustee exercises voting and investment power. Mr. Gross disclaims
beneficial ownership of such shares. Does not include the 150,000 shares of
Common Stock into which the Amended Convertible Notes held by Mr. Gross are
currently convertible. Does not include 1,266,667 shares of Common Stock into
which the Amended Convertible Notes are currently convertible, which are held by
irrevocable trusts for the benefit of the children of Mr. Gross with respect to
which an independent trustee exercises voting and investment power. Mr. Gross
disclaims beneficial ownership of such shares. Does not include 458,286 shares
issuable upon conversion of certain 10% Series A Convertible Notes of the
Company held by Mr. Gross which are not currently convertible. Does not include
476,000 shares issuable upon conversion of certain 10% Series A Convertible
Notes held by certain family related trusts with respect to which an independent
trustee exercises voting control and investment power, which are not currently
convertible. Mr. Gross disclaims beneficial ownership of such shares.
(6) Represents shares of the Company's Common Stock which may be acquired
upon exercise of a Warrant granted by the Company to Broad Capital Associates,
Inc. ("Broad Capital") on September 3, 1996 as additional consideration for
Broad Capital's exercise of certain options to purchase 89,286 shares of Common
Stock of the Company post-Reverse Stock Split for proceeds to the Company of
approximately $1 million. In accordance with Rule 416 under the Securities Act,
this registration statement also covers such indeterminate number of additional
shares of Common Stock as may become issuable upon exercise of such warrant to
prevent dilution resulting from stock splits, stock dividends or similar
transactions.
(7) Includes (i) 89,286 shares of Common Stock which may be acquired
upon exercise of a warrant held by Broad Capital, and (ii) options to purchase
60,714 shares granted to Broad Capital by the Company pursuant to the Company's
Equity Incentive Plan. Also includes Class B Warrants to purchase 88,236 shares
of Common Stock held by the 1995 Huberfeld Family Charitable Income Trust
("Huberfeld Trust"), in which Mr. Murray Huberfeld is the sole voting trustee,
and Class B Warrants to purchase 88,236 shares of Common Stock held by the 1995
Bodner Family Charitable Income Trust ("Bodner Trust"), in which Mr. David
Bodner is the sole voting trustee. Does not include the shares of Common Stock
into which the Amended Convertible Debentures held by the Laura Huberfeld &
Naomi Bodner Partnership are currently convertible. Laura Huberfeld and Naomi
Bodner are the respective spouses of Messrs. Huberfeld and Bodner. Messrs.
Huberfeld and Bodner are principals of Broad Capital. Each of Broad Capital, the
Huberfeld Trust and the Bodner Trust, and the Laura Huberfeld & Naomi Bodner
Partnership disclaim beneficial ownership in the shares beneficially owned by
each of the other parties.
(8) Represents the shares of Common Stock issued by the Company pre-
Reverse Stock Split to the named Selling Securityholder in partial payment
of the placement fee equal to 5% of the proceeds raised in the sale of the
Convertible Debentures in May and June 1996.
(9) The Convertible Debentures discussed in footnote (3) above have been
amended to reduce the ceiling conversion price to $1.50 per share (post-Reverse
Stock Split). Accordingly, such number of shares represents the shares of
Common Stock which may be acquired upon conversion of the Amended Convertible
Debentures in accordance with the Amended Conversion Formula. In determining the
number of shares indicated, the Amended Conversion Price was assumed to be $1.50
per share.
(10) The Convertible Notes discussed in footnote (4) above have been
amended to reduce the fixed conversion price to $1.50 per share post-Reverse
Stock Split. Accordingly, such number of shares represents the shares of Common
Stock which may be acquired upon conversion of the Amended Convertible Notes in
accordance with the Amended Conversion Price of $1.50 per share.
(11) Represents shares of Common Stock into which the Amended
Convertible Debentures held by the Laura Huberfield & Naomi Bodner Partnership
are currently convertible.
(12) Less than one percent (1%).
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This Supplement does not constitute a complete Prospectus and shall not
be considered an offer to sell, or a solicitation of an offer to buy, the Shares
(or the Rights) to which it relates. Reference is made to the Company's
Prospectus dated November 26, 1996, as supplemented by Supplements No. 1 and 2,
dated December 4, 1996 and December 18, 1996, respectively, for information with
respect to the Company and the Shares of the Company's Common Stock and the
Rights associated with such Shares.
The date of this Supplement is May 6, 1997.
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